PRIVATE HEALTH INSURANCE. Premiums and Enrollment for New Nonprofit Health Insurance Issuers Varied Significantly in 2014

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1 United States Government Accountability Office Report to Congressional Requesters April 2015 PRIVATE HEALTH INSURANCE Premiums and Enrollment for New Nonprofit Health Insurance Issuers Varied Significantly in 2014 GAO

2 April 2015 PRIVATE HEALTH INSURANCE Premiums and Enrollment for New Nonprofit Health Insurance Issuers Varied Significantly in 2014 Highlights of GAO , a report to congressional requesters Why GAO Did This Study The Patient Protection and Affordable Care Act (PPACA) established the CO-OP loan program, which helped create 23 consumer-governed, nonprofit health insurance issuers known as CO-OPs. To foster the creation of the CO-OPs, PPACA authorized two types of loans: (1) startup loans, which help cover the costs of establishing a CO-OP; and (2) solvency loans, which help meet states solvency requirements associated with becoming a licensed health insurance issuer. While the program seeks to increase competition and improve accountability to members, questions have been raised about the effects CO-OPs will have on health insurance markets. GAO was asked to study the CO-OP program during This report examines (1) the status of the CO-OP program loans, (2) how CO-OP health plan premiums compare to the premiums of other health plans, and (3) enrollment in CO-OP health plans. GAO analyzed data from CMS and states; reviewed applicable statutes, regulations, guidance, and other documentation; and interviewed officials from CMS and seven CO-OPs that were selected based on the total amount of loans awarded, geographic region, and the type of health insurance exchange (i.e., federally facilitated or state-based exchange) operated in the state where the CO-OP offered health plans. In commenting on a draft of this report, the Department of Health and Human Services described activities used to monitor the CO-OP program and provided technical comments, which were incorporated as appropriate. View GAO For more information, contact Vijay A. D'Souza at (202) or dsouzav@gao.gov. What GAO Found As of January 2015, the Centers for Medicare & Medicaid Services (CMS) the agency that administers and monitors the consumer operated and oriented plan (CO-OP) program has disbursed about two thirds of the $2.4 billion in loans awarded to 23 CO-OPs. CMS has disbursed about $351 million in start-up loans and $1.2 billion in solvency loans. The percentage of start-up loan funding disbursed to CO-OPs equaled all, or nearly all, of their awards. However, the percentage of solvency loan funding disbursed varied depending on each CO-OP s need to meet state solvency and reserve requirements. Disbursements to three CO-OPs equaled 100 percent of their solvency awards, while disbursements to 20 other CO-OPs ranged from 26 to 92 percent of their awards. The average premiums for CO-OP health plans were lower than those for other issuers in more than half of the rating areas geographical areas established by states and used, in part, by issuers to set premium rates for the 22 states where CO-OPs participated in the exchange during As shown in the table below, for four of the five coverage tiers standardized levels of coverage based on the portion of health care costs expected to be paid by the health plan the average premiums for CO-OP health plans were lower than the average premiums for other health plans in 54 to 63 percent of these rating areas. Rating Areas Where the Average Consumer Operated and Oriented Plan (CO-OP) Premium Was Lower Than the Average Premium of Other Health Plans, Individual Age 30, 2014 Rating areas where the average CO-OP premium was lower than the average of other health plans Tier a Total number of rating areas Number of rating areas Percentage of total Catastrophic Bronze Silver Gold Platinum Source: GAO analysis of Centers for Medicare & Medicaid Services and state data. GAO a Numbers reflect rating areas where both a CO-OP and at least one other issuer offered health plans. In addition, there was variation across rating areas in the difference between the average premiums for CO-OPs and other plans. For example, average CO-OP premiums for silver health plans were priced between 0 and 10 percent lower in 20 percent of rating areas and between 10 and 30 percent lower in 31 percent. During the first open enrollment period (October 1, 2013, through March 31, 2014), the 22 participating CO-OPs enrolled over 470,000 people. However, the total was short of the overall projections included in the CO-OPs original loan applications, and 8 of the 22 CO-OPs accounted for more than 85 percent of the total number of CO-OP enrollees. These 8 CO-OPs exceeded their enrollment projections with 5 more than doubling their projected enrollment. The remaining 14 did not meet their enrollment projections. Ten of those CO-OPs enrolled less than half of their projected enrollment numbers. Officials from the CO-OPs GAO interviewed cited relatively high premiums, for example, as a reason for lower than projected enrollment levels. United States Government Accountability Office

3 Contents Letter 1 Background 4 CMS Has Disbursed Nearly Two Thirds of the $2.4 Billion in CO-OP Program Loans Awarded 10 Average Premiums for CO-OP Health Plans Were Lower than Those for Other Health Plans in More than Half of the Rating Areas, but Differences Varied across Tiers 14 CO-OP Enrollment Performance Varied Substantially for the First Open Enrollment Period 18 Agency Comments 21 Appendix I Consumer Operated and Oriented Plans and Loan Awards 24 Appendix II Consumer Operated and Oriented Plan Premiums Relative to Other Issuers Premiums in Arizona 25 Appendix III Consumer Operated and Oriented Plan Premiums Relative to Other Issuers Premiums in Colorado 28 Appendix IV Consumer Operated and Oriented Plan Premiums Relative to Other Issuers Premiums in Connecticut 31 Appendix V Consumer Operated and Oriented Plan Premiums Relative to Other Issuers Premiums in Illinois 33 Appendix VI Consumer Operated and Oriented Plan Premiums Relative to Other Issuers Premiums in Iowa 37 Page i

4 Appendix VII Consumer Operated and Oriented Plan Premiums Relative to Other Issuers Premiums in Kentucky 40 Appendix VIII Consumer Operated and Oriented Plan Premiums Relative to Other Issuers Premiums in Louisiana 43 Appendix IX Consumer Operated and Oriented Plan Premiums Relative to Other Issuers Premiums in Maine 46 Appendix X Consumer Operated and Oriented Plan Premiums Relative to Other Issuers Premiums in Maryland 49 Appendix XI Consumer Operated and Oriented Plan Premiums Relative to Other Issuers Premiums in Massachusetts 52 Appendix XII Consumer Operated and Oriented Plan Premiums Relative to Other Issuers Premiums in Michigan 55 Appendix XIII Consumer Operated and Oriented Plan Premiums Relative to Other Issuers Premiums in Montana 59 Appendix XIV Consumer Operated and Oriented Plan Premiums Relative to Other Issuers Premiums in Nebraska 62 Appendix XV Consumer Operated and Oriented Plan Premiums Relative to Other Issuers Premiums in Nevada 65 Page ii

5 Appendix XVI Consumer Operated and Oriented Plan Premiums Relative to Other Issuers Premiums in New Jersey 68 Appendix XVII Consumer Operated and Oriented Plan Premiums Relative to Other Issuers Premiums in New Mexico 71 Appendix XVIII Consumer Operated and Oriented Plan Premiums Relative to Other Issuers Premiums in New York 74 Appendix XIX Consumer Operated and Oriented Plan Premiums Relative to Other Issuers Premiums in Oregon 77 Appendix XX Consumer Operated and Oriented Plan Premiums Relative to Other Issuers Premiums in South Carolina 80 Appendix XXI Consumer Operated and Oriented Plan Premiums Relative to Other Issuers Premiums in Tennessee 88 Appendix XXII Consumer Operated and Oriented Plan Premiums Relative to Other Issuers Premiums in Utah 91 Appendix XXIII Consumer Operated and Oriented Plan Premiums Relative to Other Issuers Premiums in Wisconsin 94 Appendix XXIV Comments from the Department of Health and Human Services 97 Page iii

6 Appendix XXV GAO Contact and Staff Acknowledgments 99 Tables Table 1: Rating Areas Where the Average Consumer Operated and Oriented Plan (CO-OP) Premium Was Lower than the Average Premium for Other Health Plans, Individual Age 30, Table 2: Consumer Operated and Oriented Plans (CO-OP) and CO-OP Program Loan Awards, January Figures Figure 1: States in which Consumer Operated and Oriented Plans (CO-OP) Offered Health Plans in the Health Insurance Exchanges for 2014 and Figure 2: Percentage of Start-up and Solvency Loan Disbursed to Consumer Operated and Oriented Plans, January Figure 3: Total Start-up Loans Awarded to Consumer Operated and Oriented Plans (CO-OP) and the Percentage Disbursed, January Figure 4: Total Solvency Loans Awarded to Consumer Operated and Oriented Plans (CO-OP) and the Percentage Disbursed, January Figure 5: Distribution of Rating Areas Where Average Premiums for Consumer Operated and Oriented Plans (CO-OP) Silver Tier Health Plans Were Higher or Lower than the Average Premiums of Other Issuers by State, Individual Age 30, Figure 6: Distribution of Differences across Rating Areas between Average Premiums for Consumer Operated and Oriented Plans (CO-OP) and Other Issuers Silver Tier Health Plans, Individual Age 30, Figure 7: Consumer Operated and Oriented Plans (CO-OP) Actual and Projected Enrollment in Individual Market Health Plans during the First Enrollment Period, October 1, 2013, through March 31, Figure 8: Relative Ranking (in percentiles) of Premiums for the Consumer Operated and Oriented Plan (CO-OP) Compared to Premiums for Other Health Plans by Rating Area and Tier in Arizona, Individual Age 30, Page iv

7 Figure 9: Relative Ranking (in percentiles) of Premiums for the Consumer Operated and Oriented Plan (CO-OP) Compared to Premiums for Other Health Plans by Rating Area and Tier in Colorado, Individual Age 30, Figure 10: Relative Ranking (in percentiles) of Premiums for the Consumer Operated and Oriented Plan (CO-OP) Compared to Premiums for Other Health Plans by Rating Area and Tier in Connecticut, Individual Age 30, Figure 11: Relative Ranking (in percentiles) of Premiums for the Consumer Operated and Oriented Plan (CO-OP) Compared to Premiums for Other Health Plans by Rating Area and Tier in Illinois, Individual Age 30, Figure 12: Relative Ranking (in percentiles) of Premiums for the Consumer Operated and Oriented Plan (CO-OP) Compared to Premiums for Other Health Plans by Rating Area and Tier in Iowa, Individual Age 30, Figure 13: Relative Ranking (in percentiles) of Premiums for the Consumer Operated and Oriented Plan (CO-OP) Compared to Premiums for Other Health Plans by Rating Area and Tier in Kentucky, Individual Age 30, Figure 14: Relative Ranking (in percentiles) of Premiums for the Consumer Operated and Oriented Plan (CO-OP) Compared to Premiums for Other Health Plans by Rating Area and Tier in Louisiana, Individual Age 30, Figure 15: Relative Ranking (in percentiles) of Premiums for the Consumer Operated and Oriented Plan (CO-OP) Compared to Premiums for Other Health Plans by Rating Area and Tier in Maine, Individual Age 30, Figure 16: Relative Ranking (in percentiles) of Premiums for the Consumer Operated and Oriented Plan (CO-OP) Compared to Premiums for Other Health Plans by Rating Area and Tier in Maryland, Individual Age 30, Figure 17: Relative Ranking (in percentiles) of Premiums for the Consumer Operated and Oriented Plan (CO-OP) Compared to Premiums for Other Health Plans by Rating Area and Tier in Massachusetts, Individual Age 30, Figure 18: Relative Ranking (in percentiles) of Premiums for the Consumer Operated and Oriented Plan (CO-OP) Compared to Premiums for Other Health Plans by Rating Area and Tier in Michigan, Individual Age 30, Page v

8 Figure 19: Relative Ranking (in percentiles) of Premiums for the Consumer Operated and Oriented Plan (CO-OP) Compared to Premiums for Other Health Plans by Rating Area and Tier in Montana, Individual Age 30, Figure 20: Relative Ranking (in percentiles) of Premiums for the Consumer Operated and Oriented Plan (CO-OP) Compared to Premiums for Other Health Plans by Rating Area and Tier in Nebraska, Individual Age 30, Figure 21: Relative Ranking (in percentiles) of Premiums for the Consumer Operated and Oriented Plan (CO-OP) Compared to Premiums for Other Health Plans by Rating Area and Tier in Nevada, Individual Age 30, Figure 22: Relative Ranking (in percentiles) of Premiums for the Consumer Operated and Oriented Plan (CO-OP) Compared to Premiums for Other Health Plans by Rating Area and Tier in New Jersey, Individual Age 30, Figure 23: Relative Ranking (in percentiles) of Premiums for the Consumer Operated and Oriented Plan (CO-OP) Compared to Premiums for Other Health Plans by Rating Area and Tier in New Mexico, Individual Age 30, Figure 24: Relative Ranking (in percentiles) of Premiums for the Consumer Operated and Oriented Plan (CO-OP) Compared to Premiums for Other Health Plans by Rating Area and Tier in New York, Individual Age 30, Figure 25: Relative Ranking (in percentiles) of Premiums for the Two Consumer Operated and Oriented Plans (CO-OP) Compared to Premiums for Other Health Plans by Rating Area and Tier in Oregon, Individual Age 30, Figure 26: Relative Ranking (in percentiles) of Premiums for the Consumer Operated and Oriented Plan (CO-OP) Compared to Premiums for Other Health Plans by Rating Area and Tier in South Carolina, Individual Age 30, Figure 27: Relative Ranking (in percentiles) of Premiums for the Consumer Operated and Oriented Plan (CO-OP) Compared to Premiums for Other Health Plans by Rating Area and Tier in Tennessee, Individual Age 30, Figure 28: Relative Ranking (in percentiles) of Premiums for the Consumer Operated and Oriented Plan (CO-OP) Compared to Premiums for Other Health Plans by Rating Area and Tier in Utah, Individual Age 30, Page vi

9 Figure 29: Relative Ranking (in percentiles) of Premiums for the Consumer Operated and Oriented Plan (CO-OP) Compared to Premiums for Other Health Plans by Rating Area and Tier in Wisconsin, Individual Age 30, Abbreviations CMS CO-OP HHS OIG PPACA Centers for Medicare & Medicaid Services consumer operated and oriented plan Department of Health and Human Services Office of Inspector General Patient Protection and Affordable Care Act This is a work of the U.S. government and is not subject to copyright protection in the United States. The published product may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately. Page vii

10 Letter 441 G St. N.W. Washington, DC April 30, 2015 Congressional Requesters: The Patient Protection and Affordable Care Act (PPACA) established the consumer operated and oriented plan (CO-OP) program a loan program intended to foster the creation of new, consumer-governed, nonprofit health insurance issuers known as CO-OPs to offer qualified health plans in the individual and small group health insurance markets. 1,2 For this purpose, PPACA appropriated funding and authorized the awarding of two types of loans: (1) start-up loans, which help cover costs associated with establishing a CO-OP; and (2) solvency loans, which help meet states solvency requirements associated with licensure as a health insurance issuer. 3 The Centers for Medicare & Medicaid Services (CMS) the agency within the Department of Health and Human Services (HHS) that administers and monitors the CO-OP program awarded start-up loans totaling about $363 million and solvency loans totaling 1 Pub. L. No , 124 Stat. 163, (Mar. 23, 2010) (codified at 42 U.S.C ). Qualified health plans are health plans certified to be offered through a health insurance exchange established under PPACA. PPACA required the establishment in all states of health insurance exchanges marketplaces where eligible individuals can compare and select among private insurance plans. In states electing not to establish and operate an exchange, PPACA required the federal government to establish and operate the exchange. Exchanges established and operated by the federal government are known as federally facilitated exchanges. The exchanges in states that chose to establish and operate their own exchange are known as state-based exchanges. 2 Small group market means the health insurance market under which individuals obtain health insurance coverage through a group health plan offered by a small employer. PPACA defines a small employer as having employed an average of 1 to 100 employees during the preceding calendar year. Until 2016, a state has the option to define small employers as having employed an average of 1 to 50 employees during the preceding year. See 42 U.S.C (b). 3 PPACA authorized both loans and grants under the CO-OP program. However, because the grants must be repaid, CMS in implementing the program also considered the solvency grants to be loans. State solvency requirements include reserve requirements, which are funds that an insurance company must reserve, or set aside, to cover potential claims. Solvency requirements vary by state. Page 1

11 $2.1 billion. 4 The funding disbursed under these loans helped establish 23 CO-OPs, which currently offer health plans in 23 states. 5 In creating these 23 CO-OPs, the CO-OP program seeks to enhance competition in the states markets for health insurance sold directly to individuals and small employers, which potentially could reduce health plan premiums, while improving choice for consumers and encouraging accountability to members. However, questions have been raised about the effects that the CO-OPs will ultimately have on states health insurance markets. For example, in late 2009, when the Congressional Budget Office estimated the direct spending and revenue effects of PPACA, the agency indicated that it seemed unlikely that the CO-OPs would establish a significant market presence in many areas. 6 Given these questions, you asked us to review the CO-OP program. In this report we examine 1. the status of the CO-OP program loans awarded to date; 2. how premiums for CO-OP health plans compared to premiums for other health plans during 2014; and 3. enrollment in CO-OP health plans during To examine the status of the CO-OP program loans, we obtained data from CMS on the amounts awarded, disbursed, and awarded but undisbursed as of January 9, We also obtained data on CO-OP funding that remained available for obligation as of the same date. To examine how premiums for CO-OP health plans compared to the premiums for other health plans, we obtained 2014 premium data from 4 The amounts awarded represent the total funding that CMS has agreed to provide the CO-OPs as of January The CO-OPs actually receive this funding when disbursements are made. 5 One additional organization in Vermont received start-up and solvency loan awards, but was subsequently denied a license as a health insurance issuer by the state. As a result, CMS terminated the organization from the CO-OP program. CO-OPs may obtain licensure and offer health plans in multiple states. One CO-OP that offered health plans in Iowa and Nebraska operated at a significant loss during This CO-OP was taken over by the Iowa Commissioner of Insurance in December 2014 and is currently in the process of being liquidated. 6 Congressional Budget Office, Letter to U.S. Senate Majority Leader (Washington, D.C.: Nov. 18, 2009). Page 2

12 CMS for the 14 states that had a federally facilitated exchange in which CO-OPs participated during the first enrollment period (October 1, 2013, through March 31, 2014). 7 We also obtained comparable premium data from the eight states that had state-based exchanges in which CO-OPs participated. For each rating area in each state and for health plans at each metal level, as well as catastrophic plans, we calculated and compared the average premiums for CO-OP health plans and the average premiums for other health plans for 10 different categories of policyholder: adult individuals aged 30, 40, 50, and 60 and adult couples aged 30, 40, and 50 with and without children. 8 We also interviewed officials from eight CO-OPs that were selected based on the total amount of loans awarded to the CO-OP, its geographic region, and the type of health insurance exchange (i.e., federally facilitated or state-based exchange) operated in the state where the CO-OP offered health plans. To analyze CO-OP health plan enrollment during the first open enrollment period, we obtained data from CMS. The data covered CO-OP enrollment for each of the 22 states where a CO-OP participated on the exchange. We also obtained estimates of projected enrollment for each CO-OP that were used, in part, to determine the initial CO-OP program loan awards 9 and compared those estimates to actual enrollment. To assess the reliability of the data we obtained from CMS on the CO-OP program loans, CO-OP and other issuer premiums, and CO-OP enrollment, we performed manual and electronic testing to identify missing data and other anomalies and interviewed agency officials to 7 Data on 2014 premiums were the most recently available data at the beginning of our work. 8 PPACA gave states the authority to establish geographic locations by which premiums may vary, known as rating areas. PPACA required certain categories of benefits at standardized levels of coverage specified by metal level bronze, silver, gold, and platinum depending on the portion of health care costs expected to be paid by the health plan. Catastrophic plans, which are available to individuals meeting certain criteria, generally provide coverage for services only once a high deductible is met. In this report, we refer to each level of coverage catastrophic, bronze, silver, gold, and platinum as a tier. 9 According to CMS officials, CO-OPs were allowed to adjust their estimates for projected enrollment prior to the start of the open enrollment period. For many CO-OPs, the new estimates were significantly lower. We used the estimates from the CO-OPs original loan applications because, as noted, these estimates were considered by CMS when determining the initial CO-OP program awards. Page 3

13 confirm our understanding of the data. To assess the reliability of the data we obtained from states on CO-OP and other issuer premiums, we performed manual and electronic testing to identify missing data and other anomalies and followed up with state officials and incorporated corrections as necessary. We determined that the data were sufficiently reliable for our purposes. We conducted this performance audit from January 2014 to April 2015, in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. Background PPACA establishes certain conditions governing participation in the CO-OP program. Specifically, PPACA defines a CO-OP as a health insurance issuer organized under state law as a nonprofit, member corporation of which the activities substantially consist of the issuance of qualified health plans in the individual and small group markets in the state where CO-OPs are licensed to issue such plans. PPACA prohibits organizations that were health insurance issuers on July 16, 2009, or sponsored by a state or local government from participating in the CO-OP program. 10 PPACA also requires that (1) governance of a CO-OP be subject to a majority vote of its members; 11 (2) the governing documents of a CO-OP incorporate ethics and conflict of interest standards protecting against insurance industry involvement and interference; and (3) the operation of a CO-OP have a strong consumer focus, including timeliness, responsiveness, and accountability to its members. In addition, PPACA directs CMS to prioritize the award of CO-OP loans to 10 A sponsor is an organization or individual that is involved in the development, creation, or organization of the CO-OP or provides 40 percent or more in total funding to a CO-OP. 45 C.F.R PPACA also prohibits organizations with a related entity that was a health insurance issuer on July 16, 2009, from participating in the CO-OP program. 11 Federal regulations require the majority of a CO-OP s voting directors to be members those covered under policies issued by the CO-OP within a year of issuing health plans. 45 C.F.R , Page 4

14 applicants that plan to offer qualified health plans statewide, plan to utilize integrated models of care, and have significant private support. 12 Consistent with PPACA, CMS established two types of loans: start-up loans and solvency loans. Start-up loans cover approved start-up costs including salaries and wages, fringe benefits, consultant costs, equipment, supplies, staff travel, and approved indirect costs. After the initial disbursement of start-up loan funds, subsequent disbursements are to be made according to a disbursement schedule established in the loan agreement between CMS and each loan recipient. Subsequent disbursements are also contingent upon evidence demonstrating the loan recipient s successful achievement of milestones also established as part of the loan agreement between CMS and each loan recipient. Milestones could include obtaining health insurance licensure and submitting timely reporting information in the required format. Loan recipients can coordinate with CMS to adjust the disbursement schedule and milestones as needed. Each disbursement for a start-up loan must be repaid within 5 years of the disbursement date. Solvency loans assist CO-OPs in meeting state insurance solvency and reserve requirements. 13 CO-OPs may request disbursements for solvency loans as needed to meet states reserve capital and solvency requirements. Reasons for CO-OPs needing additional solvency disbursements could include enrollment growth and higher than anticipated claims from members. CO-OP requests are subject to CMS review of necessity and sufficiency. Each disbursement of a solvency loan must be repaid within 15 years of the disbursement date. The CO-OP program is a direct loan program. For a direct loan, the estimated long-term cost to the government known as the credit subsidy cost is calculated as the net present value of estimated cash flows over 12 Private support includes monetary and other types of support such as in-kind support and letters of intent from key stakeholders. Such support may demonstrate a high probability of financial viability. 13 PPACA prohibits the use of start-up and solvency loans for carrying on propaganda or otherwise attempting to influence legislation, or for marketing. Page 5

15 the life of each loan. 14 Credit subsidy costs are estimated when the present value of estimated payments by the government (such as loan disbursements) exceeds the present value of estimated payments to the government (such as principal repayments, fees, interest payments, and recoveries). Credit subsidy costs are required to be covered by an appropriation. Therefore, if CMS awards a $10 million solvency loan to a CO-OP, the $10 million represents the payments by the government. If CMS calculates the present value for estimated payment to the government to be $6 million, the loan s subsidy cost would be the net difference of $4 million and would need to be covered by the CO-OP appropriation. 15 To ensure that applicants met the conditions for participating in the CO-OP program, CMS required applications for the CO-OP program loans to include information about organizational structure and governance, as well as provide bylaws, a business plan, and a feasibility study. CMS and a contractor reviewed applications. The contractor was responsible for evaluating applications and recommending loan amounts and a disbursement schedule based on information in the application package and supporting documents. When making the final decisions regarding the loan awards, CMS officials considered the contractors recommendations and other factors, including the size of the loan request and anticipated results of funding the application. 16 By December 2012, CMS had awarded CO-OP program loans to 24 organizations. Several laws had the effect of reducing the $6 billion PPACA originally appropriated for the CO-OP program by about 65 percent and limiting program participation. In 2011, two separate appropriations acts 14 Present value calculations reflect the time value of money, based on the assumption that a dollar in the future is worth less than a dollar today because the dollar today can be invested and earn interest. The net present value of a loan reflects the difference between the present values of negative and positive estimated cash flows, such as the initial outlay offset by the present value of future estimated repayments. 15 At the time of disbursement the remaining $6 million would be borrowed from the Department of Treasury and repaid with principal and interest payments by the CO-OPs. 16 The HHS Office of Inspector General (OIG) reported that CMS awarded the initial startup loans in accordance with federal requirements. See HHS OIG, The Centers for Medicare & Medicaid Services Awarded Consumer Operated and Oriented Plan Program Loans in Accordance with Federal Requirements, and Continued Oversight Is Needed (Washington, D.C.: July 2013). Page 6

16 rescinded $2.6 billion of the CO-OP appropriation. 17 Additionally, in January 2013, the American Tax Payer Relief Act of 2012 rescinded another $1.3 billion of the unobligated CO-OP program appropriation, leaving about $1.1 billion of the original $6 billion CO-OP appropriation available for the credit subsidy costs of CO-OP program loan awards and CO-OP program administration. 18 The American Tax Payer Relief Act of 2012 also transferred any remaining appropriation to a contingency fund for providing assistance and oversight to CO-OP loan awardees, which essentially restricted CO-OP program participation to the 24 organizations that received CO-OP loan awards prior to January Of these 24 organizations, all but one became a CO-OP. (See app. I for a list of the 23 CO-OPs and the amount of CO-OP program loans awarded as of early January 2015.) During the first health insurance exchange open enrollment period which operated from October 1, 2013 to March 31, of the 23 CO-OPs offered health plans in the health insurance exchanges of 22 states. 20 The CO-OP for Ohio offered plans off the exchange, but did not participate in the state s exchange. One CO-OP participated in both the Iowa and the Nebraska exchange, and two CO-OPs operated in the exchange for Oregon. During the 2015 open enrollment period which operated from November 15, 2014 to February 15, 2015 all 23 CO-OPs offered health plans in the exchanges of 25 states. 21 In addition to the Ohio CO-OP offering plans for the first time on the exchange for Ohio during the more recent enrollment period, the CO-OPs in Maine and Massachusetts both expanded to New 17 The Department of Defense and Full-Year Continuing Appropriations Act, 2011 rescinded $2.2 billion. Pub. L. No , 1857, 125 Stat. 38, 168 (Apr. 15, 2011). The Consolidated Appropriations Act, 2012 rescinded another $400 million. Pub. L. No , 524,125 Stat. 786, 1115 (Dec. 23, 2011). 18 Pub. L. No , 644, 126 Stat. 2313, 2362 (Jan. 2, 2013).This amount also reflects a $13 million reduction as part of the across-the-board cancellation of budget resources known as sequestration as ordered by the President on March 1, One organization in Vermont was unable to obtain a license as a health insurance issuer from its state s insurance commissioner. As a result, CMS terminated the organization from the CO-OP program. 20 CO-OP loan recipients are required to offer qualified health plans at the silver and gold metal levels in every individual market exchange that serves the geographic regions in which the organization is licensed and intends to provide health care coverage. 21 The CO-OP that offered health plans in Iowa and Nebraska participated in the second open enrollment period until December Page 7

17 Hampshire and the CO-OP from Montana expanded to Idaho, and all offered health plans on the exchanges of those states for the first time. (See fig. 1.) Figure 1: States in which Consumer Operated and Oriented Plans (CO-OP) Offered Health Plans in the Health Insurance Exchanges for 2014 and 2015 Notes: One CO-OP offered health plans in both Iowa and Nebraska. Two CO-OPs offered health plans in Oregon. CO-OPs from Maine and Massachusetts both offered health plans in New Hampshire for Page 8

18 An organization in Vermont received start-up and solvency loan awards, but was subsequently denied a license as a health insurance issuer by the state. As a result, the Centers for Medicare & Medicaid Services terminated the organization from the CO-OP program. The CO-OP that offered health plans in Iowa and Nebraska operated at a significant loss during 2014 due to higher than expected claims. This CO-OP was taken over by the Iowa Commissioner of Insurance in December 2014 and is currently being liquidated. PPACA establishes rules governing how issuers can set premium rates. For example, while issuers are no longer able to consider gender or health status in setting premiums, issuers may consider family size, age, and tobacco use. 22 Also, issuers may vary premiums based on areas of residence. States have the authority to use counties, Metropolitan Statistical Areas, zip codes, or any combination of the three in establishing geographic locations by which premiums may vary, known as rating areas. 23 The number of rating areas per state varies, ranging from a low of 1 to a high of 67. Most states have 10 or fewer rating areas. PPACA also requires that coverage sold include certain categories of benefits at standardized levels of coverage specified by metal level bronze, silver, gold, and platinum. Each metal level corresponds to a proportion of allowable charges that a health plan is expected to pay on 24 average, known as the actuarial value. Health plans within a metal level have the same actuarial value, meaning each plan pays approximately the same proportion of allowable charges as others. Plans from different metal levels have different actuarial values and pay a higher or lower proportion of allowable charges. For example, a gold health plan is more 22 PPACA restricts the amount by which issuers can vary premiums based on age and tobacco use. Premiums for adults aged 64 or older may not be more than 3 times the premiums of adults aged 21. The premiums for tobacco users may not be more than 1.5 times the premiums of non-tobacco users. In regard to family size, issuers may only take into account the premium rates of three covered children under the age of 21 when determining the premium for a family with four or more children. 23 A Metropolitan Statistical Area consists of one or more counties that contain at least one core urban area with a population of 50,000 or more, as well as adjacent counties that have a high degree of social and economic integration with the urban core, as measured by commuting ties. 24 Actuarial value measures the relative generosity of benefits covered by a health insurance plan. Under PPACA, a health insurance plan s actuarial value indicates the average share of allowable medical spending that is paid by the plan, as opposed to being paid out of pocket by the consumer. Actuarial values are calculated on an average basis for a standard population and do not predict the actual out-of-pocket costs for any individual. Amounts paid in premiums are not considered part of a health plan s actuarial value. Page 9

19 generous overall than a bronze health plan. Actuarial values for health plans under PPACA range from 60 to 90 percent by metal level as follows: bronze (60 percent), silver (70 percent), gold (80 percent), or platinum (90 percent). 25 Issuers may also offer catastrophic health plans to individuals under 30 and individuals exempt from the individual mandate. 26 Catastrophic plans have actuarial values that are less than what is required to meet any of the other metal levels. While these plans are required to cover three primary care visits and preventive services at no cost prior to an enrollee reaching the plan s deductible, they generally do not cover costs for other health care services until a high deductible is met. CMS Has Disbursed Nearly Two Thirds of the $2.4 Billion in CO-OP Program Loans Awarded As of early January 2015, CMS has disbursed about $1.6 billion (64 percent) of the $2.4 billion in loans awarded to the 23 CO-OPs. 27 Specifically, CMS has disbursed $351 million in start-up loans and $1.2 billion in solvency loans. The $351 million in start-up loan disbursements represents about 98 percent of the total amount of start-up loans awarded, whereas the $1.2 billion in solvency loan disbursements represents about 59 percent of the total amount of solvency loans awarded. (See fig. 2.) 25 Cost-sharing including deductibles, co-pays, and coinsurance amounts can vary across the health plans for each metal level, as long as the overall cost-sharing structure of each meets the required actuarial value levels. A deductible is a specified amount that must be paid by the consumer before the health plan will begin paying for covered services. A copayment is a fixed dollar amount that a consumer must pay at the time a covered service is provided, such as a $25 payment for a physician visit. Coinsurance is a fixed percentage of the total allowable cost of covered services that a consumer must pay. 26 PPACA mandates that individuals, subject to certain exceptions, obtain health insurance coverage beginning in 2014 or pay a financial penalty the individual mandate. Exemptions from paying the financial penalty are granted to people based on income or other factors that prevent them from getting coverage. 27 Amounts exclude loan awards and disbursements to the organization in Vermont that failed to obtain health insurance licensure. The credit subsidy cost of the $2.4 billion in CO-OP loans awarded was about $1.1 billion. Page 10

20 Figure 2: Percentage of Start-up and Solvency Loan Disbursed to Consumer Operated and Oriented Plans, January 2015 CMS has disbursed nearly all of the start-up loans awarded to the 23 CO-OPs. As figure 3 shows, disbursements to 11 CO-OPs equaled 100 percent of their start-up loan awards. Disbursements to the remaining 12 CO-OPs were more than 85 percent of awards. (See fig. 3.) Page 11

21 Figure 3: Total Start-up Loans Awarded to Consumer Operated and Oriented Plans (CO-OP) and the Percentage Disbursed, January 2015 In contrast to start-up loans, the percentage of awarded solvency loans disbursed to the 23 CO-OPs has varied depending on their needs. Disbursements to 3 of the 23 CO-OPs CoOportunity Health, Kentucky Health Cooperative, Inc., and HealthyCT equal 100 percent of their solvency loan awards. However, disbursements to 9 CO-OPs are less than 50 percent with disbursements to 2 CO-OPs Land of Lincoln Page 12

22 Health and Maine Community Health Options being less than 30 percent of awards. The percentage of solvency loan funding disbursed to the remaining 11 CO-OPs ranged from 53 percent to 92 percent. (See fig. 4.) The percentages of solvency loan awards disbursed to CO-OPs reflect each CO-OP s need for additional resources to meet state solvency and reserve requirements, which may be the result of enrollment growth or higher than anticipated claims from members. Figure 4: Total Solvency Loans Awarded to Consumer Operated and Oriented Plans (CO-OP) and the Percentage Disbursed, January 2015 Page 13

23 As of early January 2015, about $22 million of the CO-OP program appropriation was still available for obligation. According to CMS officials, the agency intends to use the remaining funds for administering the CO-OP program over the next few years. Average Premiums for CO-OP Health Plans Were Lower than Those for Other Health Plans in More than Half of the Rating Areas, but Differences Varied across Tiers In the 22 states where CO-OPs offered health plans on the states health insurance exchanges in 2014, the average premiums for CO-OP health plans in all tiers were lower than the average premiums for other health plans in more than half of the rating areas. 28 CO-OPs offered bronze, silver, and gold tier health plans in 91 percent of the rating areas, but offered catastrophic and platinum tier health plans in fewer rating areas. 29 For 4 of 5 tiers, the average premiums for CO-OP health plans were lower than the average premiums for other health plans in 54 to 63 percent of rating areas where both a CO-OP and at least one other issuer offered health plans. 30 For platinum, the average premiums for CO-OP health plans were lower than the average premium for other health plans in 89 percent of rating areas where CO-OPs and other issuers offered health plans. (See table 1.) 28 We also examined how the median premiums for CO-OP health plans compared to the median premium for other health plans. The results of the comparison were similar to the comparison of the averages (means). 29 In total, there were 202 rating areas in the 22 states where CO-OPs offered health plans on the states health insurance exchanges during the first open enrollment period. 30 The relationship between the average premiums for CO-OP and other health plans for an adult aged 30 was similar to the relationship for the other categories of policyholders we analyzed: adult individuals aged 40, 50, and 60; and adult couples aged 30, 40, and 50 with and without children. In addition, we found these results were generally consistent with the results from a similar analysis using the median. Page 14

24 Table 1: Rating Areas Where the Average Consumer Operated and Oriented Plan (CO-OP) Premium Was Lower than the Average Premium for Other Health Plans, Individual Age 30, 2014 Tier Rating areas where the average CO-OP premium was lower than the average of other health plans Total number of rating areas a Number of rating areas Percentage of total Catastrophic Bronze Silver Gold Platinum Source: GAO analysis of Centers for Medicare & Medicaid Services and state data. GAO Notes: In total, there were 202 rating areas in the 22 states where CO-OPs offered health plans on the states health insurance exchanges during the first open enrollment period, which ran from October 1, 2014, through March 31, The relationship between the average premiums for CO-OP and other health plans for an adult aged 30 was similar to the other categories of policyholders we analyzed: adult individuals aged 40, 50, and 60; and adult couples aged 30, 40, and 50 with and without children. Plans in the same metal level have the same actuarial value. Catastrophic plans are not required to meet actuarial value targets, but must have actuarial values less than 60 percent. These results were consistent with the results from comparing the median premiums for CO-OP health plans with the median premium for other health plans. a Numbers reflect rating areas where both a CO-OP and at least one other issuer offered health plans. The percentage of rating areas where the average premium for CO-OP health plans was lower than the average premium for other issuers varied significantly by each state and tier. (See fig. 5 for variation in silver plans and appendixes II through XXIII for more details on how CO-OPs in each state were priced in relation to other health plans.) For example, in six states the average premiums for CO-OP silver plans were higher than the average premiums for other silver plans in all the states rating areas where a CO-OP offered a plan. In five other states the average premiums for CO-OP silver plans were lower than the average premiums for other Page 15

25 silver plans in all of the states rating areas where a CO-OP offered a plan In four states CO-OPs did not offer plans in all rating areas. In one of these states Massachusetts the average CO-OP premium was lower than the average premium of other plans in all rating areas in which a CO-OP offered a plan. In two of these states Michigan and Tennessee the average CO-OP premium was higher than the average premium of other plans in all rating areas in which a CO-OP offered a plan. Page 16

26 Figure 5: Distribution of Rating Areas Where Average Premiums for Consumer Operated and Oriented Plans (CO-OP) Silver Tier Health Plans Were Higher or Lower than the Average Premiums of Other Issuers by State, Individual Age 30, 2014 There was also variation across rating areas in the difference between the average premiums for CO-OP health plans and for other health plans. For example, for all rating areas in which CO-OPs offered silver tier health plans, average CO-OP premiums were priced between 10 and 30 percent lower in 31 percent of rating areas and between 10 and 30 percent higher in 21 percent of rating areas. CO-OP premiums were more than 30 percent lower in 4 percent of rating areas and more than 30 percent higher in 12 percent of rating areas. (See fig. 6.) Page 17

27 Figure 6: Distribution of Differences across Rating Areas between Average Premiums for Consumer Operated and Oriented Plans (CO-OP) and Other Issuers Silver Tier Health Plans, Individual Age 30, 2014 Notes: Percentages represent the share of the 184 rating areas in which the specified differences existed between the average CO-OP premium and the average premium for health plans of other issuers. Numbers do not sum to 100 due to rounding. CO-OP Enrollment Performance Varied Substantially for the First Open Enrollment Period The 22 CO-OPs that participated in the first open enrollment period enrolled over 469,000 (19 percent) of the nearly 2.5 million people who selected individual market health plans in states with CO-OPs. 32 However, total enrollment was short of the overall projections of about 559,000 that CO-OPs included in their original loan applications and 8 CO-OPs accounted for about 385,000 (85 percent) of the total number of CO-OP enrollees. These 8 CO-OPs, in particular, exceeded their enrollment projections for the first open enrollment period with 5 more than doubling their projected enrollment. The remaining 14 CO-OPs did not meet their enrollment projections for the first enrollment period. And 32 The CO-OP for Ohio offered plans off the exchange, but did not participate in the state s exchange. Page 18

28 10 of those CO-OPs enrolled less than half of their projected enrollment numbers. 33 (See fig 7.) 33 As with other issuers, CO-OPs could continue to enroll individuals who qualified for a special enrollment period after the open enrollment period ended. A special enrollment period is a time outside of the open enrollment period during which individuals and their families may sign up for health coverage. Individuals qualify for a special enrollment period following certain life events that involve a change in family status, such as marriage or the birth of a child, or the loss of health coverage. In addition, CO-OPs and other issuers could enroll small groups at any point during the year. Page 19

29 Figure 7: Consumer Operated and Oriented Plans (CO-OP) Actual and Projected Enrollment in Individual Market Health Plans during the First Enrollment Period, October 1, 2013, through March 31, 2014 Note: Projected enrollment estimates were included as part of the CO-OPs original loan applications. According to officials from the Centers for Medicare & Medicaid Services, CO-OPs were allowed to adjust these estimates prior to the start of the first open enrollment period. For many CO-OPs, the Page 20

30 new estimates were significantly lower. We used the estimates for projected enrollment from the CO- OPs original loan applications because these estimates were considered by CMS when determining the initial CO-OP program awards. CO-OP officials identified a number of factors that affected enrollment in the CO-OP health plans. Officials from CO-OPs with relatively high enrollment noted their competitive premiums, provider networks, or actions taken to mitigate the effects of technical problems with the federally facilitated exchange. CO-OP officials also cited other factors that affected enrollment performance such as technical problems with federally facilitated exchanges, a state opting to permit renewal of health plans that do not comply with PPACA requirements, 34 navigators being unaware of CO-OP plans, 35 competitive pricing strategies by larger issuers, or setting relatively high premiums compared to other issuers. Agency Comments We provided a draft of this report to HHS for comment. In its written comments which appear in appendix XXIV, HHS stated its commitment to beneficiaries of the CO-OP program and taxpayers, and described various activities used to monitor the CO-OP program. The department provided technical comments, which we incorporated as appropriate. As agreed with your offices, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies to the Secretary of Health and Human Services and other interested parties. In addition, the report will be available at no charge on the GAO website at 34 Most health plans were required to comply with PPACA insurance reforms by January However, CMS announced in November 2013 that it would provide transitional relief under which states could elect to permit issuers in their states to offer renewals of their noncompliant plans for a plan year beginning between January 1, 2014, and October 1, 2014, provided the plans met certain conditions. In March 2014, CMS extended this transitional policy through October 1, 2016, and noted that the agency may grant an additional 1-year extension, if necessary. 35 Navigators are individuals or organizations that receive grants from exchanges and are trained to help consumers, small businesses, and their employees as they look for health coverage options through the exchange, including completing eligibility and enrollment forms. These individuals and organizations are required to be unbiased. Their services are free to consumers. Page 21